The Tata Group is going to inject billions of rupees, over the next five years, on Air India to give the national carrier a makeover. Experts believe the costs cover the Rs 15,000 crore of debt that Tata Group has now taken over, but it doesn’t cover aircraft refurbishment costs.
Industry experts say the automobile-to-aviation conglomerate should have a single airline entity, and not three – Vistara, AirAsia India and now Air India. To make business profitable, it should increase ticket prices by at least 15%, rationalize capacity by chopping off loss-making routes and do away with Boeing 777 planes. Experts said the conglomerate will find huge challenges in reworking onerous engineering contracts and rationalizing workforce.
A board member believes Tatas have the capability to fix it. “In fact, all three airlines – Vistara, AirAsia India and Air India are very fixable.” He added that N Chandrasekaran, the Tata Sons chairman, will either have egg on his face or a crown on his head. It should be noted that all three airlines have crores of losses – Air India’s accumulated losses at the end of March stood at Rs 83,916 crore; AirAsia India Rs 1,532 crore; and Vistara Rs 1,612 crore. Experts warn that the airplanes’ refurbishment will be very much expensive.
Dinesh Keskar, former head of sales in Asia Pacific and India at Boeing, highlighted that the low hanging fruits are on-time performance and at least part of the fleet refurbishment. “Rationalizing the workforce, especially given the one-year contract that they can’t be touched for a year, is a much bigger challenge.”
The Government of India has paid of most of Air India’s lessors and suppliers. It has ended onerous contracts such as the sale and leaseback agreement on 21 Boeing 787 Dreamliner planes, and paid the rentals throughout the tenure so that Air India now owns them. However, an industry expert says the Tatas should do away with the Boeing 777s because their configuration is not up to global standards. He said that for making a global product, the airline needs to have wide-bodied planes configured to global standards.
Meanwhile, the Tata Group has availed a Rs10,000 crore loan from State Bank of India and Rs 5,000 crore loan from Bank of Baroda to refinance Air India’s debt availed at over 10%. Sources said the loans are unrated, unsecured and pegged at 4.25% annually.